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Financial security is often discussed in terms of the three-legged stool of savings. The first leg being personal savings, the second leg being company retirement funds, and the third leg coming from the government, i.e. Social Security.
Within the personal savings leg there is also the consideration of emergency savings and how employers can assist with that. With the passage of the emergency savings provision within the SECURE 2.0 Act of 2022, employers are starting to look at emergency savings within the workplace. A new report from Commonwealth and the Defined Contribution Institutional Investment Association's (DCIA) Retirement Research Center shows that these types of plans can really help low to moderate income earners.
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"For those earning low to moderate incomes (LMI), building emergency savings is a proven tool to enable financial resiliency and preserve retirement savings," says Nick Maynard, Senior Vice President at Commonwealth. "Over the past several years, as part of BlackRock's Emergency Savings Initiative, we've examined the influential role that employers play in workers' financial lives – and how they can offer tools and opportunities to save that meet the needs of workers earning LMI, who are also disproportionately Black, Latinx and/or women. Through five waves of research during the pandemic with plan participants earning low and moderate incomes, we have found that plan participants who had emergency savings were less likely to tap their retirement savings. In this study, we examined incentives to see whether they'd increase the likelihood of enrollment in emergency savings."
Related: Emergency savings: A key addition to a company retirement plan
Three recommendations were provided to employers from the results of the survey:
- Offer a high-quality emergency savings benefit to attract and retain workers earning LMI.
- Leverage an incentive as a means to boost enrollment of workers living on LMI.
- Reward works with small dollar incentives for saving consistently rather than by reaching a specific goal.
"One important note," adds Maynard, "is that while we were exploring how to improve demand, respondents initially had a high interest in enrolling in emergency savings programs in general – the likelihood of enrollment was 72% amongst all respondents with Black respondents having a higher average likelihood (77%)." Black and/or Latinx respondents were oversampled in the survey to ensure it was capturing the attitudes of these populations as systemic racial inequity and gender discrimination in financial systems have excluded these populations from traditional pathways to wealth, thus exacerbating financial insecurity.
The research found, on average, that a reward offered for saving consistently in an emergency savings account led to a relatively higher likelihood of enrollment in comparison to the other solutions (a reward for reaching a savings goal or a match into the account).
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